Stocks got the second half off to a positive start Wednesday after logging their best quarter in a decade.
"We're seeing a classic bull-bear battle here," said Tom Schrader, managing director for U.S. equity trading at Stifel Nicolaus Capital Markets, adding that traders were watching to see if major indexes break above their 200-day moving averages, which could trigger more buying.
In the short term, we'll probably see a rally in the next few days, veteran trader Art Cashin, director of floor operations for UBS, told CNBC.
"There's usually a slight [upside] prejudice in the first three trading days of the month. ...There's new money for the new month: pre-funding pensions, things like that."
The Dow Jones Industrial Average was up more than 100 points, or more than 1 percent. The S&P 500 and Nasdaq were also up more than 1 percent.
Meanwhile, the CBOE Volatility Index, widely considered the best gauge of fear in the market, dropped below 25 for the first time since September 2008, just before the collapse of Lehman Brothers.
Investors cheered a fourth-straight increase in home sales and shrugged off a disappointing reading on manufacturing and drop in mortgage applications.
Mortgage applications tumbled to a seven-month low and home-refinancing requests dropped 30 percent as rising mortgage rates scared off new homebuyers.
Pending-home sales rose 0.1 percent in May, slightly more than expected, and April's reading was upwardly revised. This marks the fourth straight month pending-home sales have risen; the last time there were four straight gains was October 2004.
Meanwhile, the Institute for Supply Management reported its manufacturing index rose to 44.8 in June from 42.8 in May, just slightly higher than expected. The gauge is ticking ever higher to the 50 mark, which indicates expansion; readings below 50 indicate contraction.
But construction spending fell 0.9 percent in May, more than expected, to its lowest level in five years.
Now, the market is turning to the employment situation, waiting for the government's June jobs report, due out Thursday. Typically the report is issued on a Friday but is out a day early this month due to the Fourth of July holiday.
Traders are expecting to see fewer jobs lost in June than in May, which would be a boost for the market. But, if the unemployment rate tops 10 percent, you're likely to see some selling, Schrader said.
We got a couple of preview reports on the jobs situation today: ADP reported that private employers slashed 473,000 jobsfrom their payrolls in June, more than expected, while planned layoffs fell for a fifth straight month.
A separate report from outplacement firm Challenger, Gary & Christmas showed planned layoffs at US firms in June at their lowest level since March 2008.
Ford shares were higher after the automaker reported its U.S. sales fell 10.9 percentin June, a significant improvement from the more-than-20-percent declines it logged in the first five months of the year, and said it would increase production in the third quarter.
June sales numbers will be trickling out throughout the afternoon. Analysts expect that overall, June was the best month of 2009for automakers.
General Motors CEO Fritz Henderson told a U.S. bankruptcy court yesterday that "business is better"but if a deal isn't approved by July 10, it would be forced to liquidate.
On the earnings front, General Mills , which makes Cheerios cereal and Yoplait yogurt, beat earnings expectationsand projected fiscal-year earnings far above analysts' expectations, helped by new products and easing commodity costs.
Wal-Mart broke with some other large companies, backing the part of President Obama's health-care plan that requires large companies to provide health insurance for employees.
Microsoft's new Bing search engine helped the software giant gain market sharein June, though it still trails Google .
In IPO news, shares of software maker LogMeIn jumped 25 percent on their debut on the Nasdaq, after pricing at $16 a share.
All but one IPO this year have priced at or above the expected range. The exception was online university Bridgepoint Education .
American depositary shares of Skystar Biopharmaceutical tumbled after the China-based company that makes medicine for livestock priced a $1.4 million offering at $12.98 a share, a nearly 28 percent discount to Tuesday's closing price.
The Nasdaq and S&P 500 ended June with gains for the fourth straight month. For the Dow, it came down to the final session, but those losses put the Dow on the negative side for June, ending a three-month winning streak.
For the quarter, the Dow, S&P 500, and Nasdaq all gained, marking the first quarterly gains for the Dow and S&P 500 since the third quarter of 2007. The new quarter may get off to a positive start, with U.S. stock index futures and European averages pointing higher ahead of the open.
Still to Come:
WEDNESDAY: ISM manufacturing index; construction spending; pending-home sales; weekly crude inventories; Fed's Evans speaks
THURSDAY: Weekly jobless claims; May jobs report; factory orders
FRIDAY: All U.S. financial markets closed for the Independence Day holiday
- Peter Schacknow contributed to this article